Business, 24.05.2020 01:04 ayleenmorar

Divided Airlines is currently an unlevered firm. At the end of this year and all subsequent years, the company expects to generate FCF of $200 million. All earnings after tax are paid out as dividends. The firm is considering a capital restructuring and borrowed $200 million of debt. To pay off the debt, firm will pay $8 million in interest every year for 15 years. Its cost of debt is 4%. Unlevered firms in the same industry have cost of equity of 12%.
1. In the perfect M&M's world, what is Dividend Airlines's value after restructuring?2. In the perfect M&M's world, what is Dividend Airlines' cost of equity after restructuring?3. Suppose now we know the corporate tax rate is 21%. What is the new value of Dividend Airlines after restructuring when taxes are being considered?

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Divided Airlines is currently an unlevered firm. At the end of this year and all subsequent years, t...

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